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The Engadget Interview: David Steel, Vice President of Marketing for Samsung Electronics' Digital Media Business

We recently sat down with David Steel, Vice President of Marketing for Samsung Electronics' Digital Media Business, and were able to rap with him for an hour about competing (and not competing) with Apple, the future of portable video, why Samsung might not introduce a dual-format Blu-ray/HD-DVD player, how much longer we'll have to wait to buy an OLED TV, and why they're so much more receptive to open standards than their arch-rival Sony.

One of the first questions I wanted to ask you about is related to MP3 players and digital audio. Samsung's semiconductor business is supplying flash modules to Apple for the iPod nano, reportedly at extremely discounted prices. How does this affect Samsung's MP3 player business? Is there a conflict between these two divisions of the company?

To start, obviously I can't talk about some of these commercial relationships between the semiconductor side and any of their costumers for flash memory. We certainly have a big interest in flash memory on the consumer electronics side of the business and have really seen the growth of flash memory. Previously some of these smaller MP3 players that were using hard disk drives we now want to move over to larger capacity flash memory. There certainly is a strategic goal there in really trying to hasten the growth of flash memory in players. That's really coming from the component side, rather than from the [consumer electronics] side.

All of this interest in flash is quite helpful to us because it boosts the industry in a place where we want to see it go. So I mean, don't think that all the time this is just a competition between Samsung and Apple. I think something that can grow the market, particularly in flash memory players, is good for everyone. I don't see this as a conflict - the semiconductor guys are growing their sales in flash memory products while we're also significantly growing sales in MP3 players.

But even if there's not a conflict, Samsung has stated that it intends to be
the number one maker of MP3 players by 2007. How does
giving Apple a deal on flash memory affect those plans? How does Samsung compete with the iPod nano, for instance,
which is such an aggressively priced product? Apple has generated a lot of buzz in way that no other companies have
been able to. How is Samsung going to counter Apple's recent moves?

So a couple of things there I think. The first one is again it shouldn't just be a Samsung versus Apple position.
This market is huge. It's growing very fast. There's room in there for different companies so I don't think it's just
like A versus B, particularly in the area of flash memory. But the other thing is if you look at our strategy we're
focused much more on a wider range of products, so where you've seen Apple come out with one, two, three different
products, we've been very much focused on a wide range, really leveraging our strengths in multimedia and cameras and
even into some of the DMB [Digital
Multimedia Broadcasting] products that we have now in Korea. That's sort of where we're really focused.

But I think when we look at the market we don't see this as a strong competition with Apple as I think a lot of
journalists like to write about. To us it's sort of a "rising tide lifts all the ships", the bigger challenge for this
market is for consumers to get used to these products, to get excited by them, and then to grow from being a niche
product —which is what MP3 has been — to being a broad mass product. And to accomplish that I think that it's not just
about the product, it's about the service as well.

But Samsung has previously stated that it intended to be the biggest player on the market, then to come back
and say, "Well, it's not a competition," — even if those two things are not necessarily mutually exclusive, it
was your stated goal to be number one.

Remember that we sort of let go of this MP3 market for several years. Several years ago we were really leading in this
MP3 market, but we didn't see it taking off partly because there were no legal downloads at the time and partly because
consumers were not yet ready for it and didn't know quite how to use these products. So we then took a step back, and
kudos to Apple for putting the iTunes service together, that really established the whole ease of use and the whole
ecosystem behind these products.

Now that we've refocused on this, yes, definitely our goal is to take a global leadership position. We think we've got
the right pieces in the company to do that in terms of component technologies and all the building blocks of multimedia
players.

What we haven't done so far is come up with something on the service side, and that's going to take longer for us to
really push through our strategy there. But I mean still we're very committed to the market. We think there's a huge
opportunity here.

In terms of services I know that you've had the partnership with
Napster here in the U.S. before. Is
your strategy focused on partnering with
PlaysForSure-compatible
services or is there a possibility of a Samsung-branded music store?

Country by country we might think about doing something ourselves, but in general the main thrust of our approach is
through partnerships. We think that our brand is becoming strong in the device space, so that's where we want to focus
on the positioning of the Samsung brand, and then rely on partners that have trusted brands in the content space or
delivery space. In general we're not going to launch our own global download site, but we do want to look for strong
partners.

Obviously PlaysForSure is more of a certification rather than a download service, but we think that it is a good thing.
Anything that makes these products easier to use and that removes uncertainties about purchase, well, anything that
really improves that has to be good.

Samsung has introduced several players recently that support video, but it seems like in general there hasn't
been a big focus on portable video from Samsung and there's never been a followup to the Portable Media Center which
Samsung introduced last year. I have two questions; one, have you given up on Portable Media Center as a platform; and
two, how important is portable video to Samsung as a company?

This a good question, because you're right that we came out with the
YH-999 last year. A couple of things
about where we're at with video. Firstly, the download services are not there, so we're seeing the same thing that
happened in the audio segment before iTunes opened up the legal download market. The second thing is that I don't think
we've got the consumer acceptance yet of video on a very small form factor. Both of those things will take some time as
we get the right kind of content. That's one reason why we're excited about DMB, because DMB is a way of getting live
video content onto a device rather then storing clips of something on a portable media player. We see a big opportunity
there in Korea, and we're in discussions in Europe to rollout DMB. So I think that's an important way of getting
video.

When we think about these devices, the temptation as a manufacturer is to come out from the hardware perspective and I
think what we've really learned over the last few years is that we have to come at it from the consumer perspective.
Just saying you can put video clips on a player isn't appealing to people unless it's the right content. What content
are they looking for? Often it's time sensitive content. They want to see the news. They want to catch up on
yesterday's sports while they're traveling, something like that. And that's where, DMB with its real-time content, has
some opportunity.

So we're looking close to the area but I think a lot of the objections that have been raised about portable video on
small screens are quite valid. Customers are unlikely to want to watch movies on a 1.5-inch screen, so it's dependent
on what type of content we have.

There's no DMB here in the U.S., so how does that factor into your plans for portable video?

In the U.S. video is likely to come first through the cellphone operators. Later we'll see who wants to put in the
infrastructure for other types of devices, but when we look around the world really what we see is the same "chicken
and the egg" problem. The infrastructure players say, "Well, why should we invest when there are no devices?" And
device makers say, "Why should we make anything when there's no infrastructure?" So what we did three, four weeks ago
now in IFA in Europe was show this whole range of DMB products, all the way from laptops through to portable media
players and even camcorders, saying, "Okay, all the products are here. We're actually going to sell these soon in
Korea." We wanted to set this as a signal to infrastructure players, "Come on, now if you invest we can actually put a
business bottled together," but I think in the U.S., at least at the beginning, we'll see video mainly through the
telecoms.

I wanted to ask about HD DVD
versus Blu-ray. Samsung recently
announced plans to introduce a dual-player that will play both HD DVD and Blu-ray disks. Up until this point it seemed
like Samsung was 100% committed to Blu-ray, especially given that you have already introduced a Blu-ray disc recorder.
Does this signal a shift in the company's commitment to Blu-ray or in your approach to this format war?

There's no big shift. All along our commitment has been to Blu-ray, but even a step back from that, our commitment has
been to a single standard because that is the most important thing for the market. Our judgment has always been that
Blu-ray is the best standard for market in terms of its technical performance. We were one of the founders of Blu-ray
and we've been committed to that. We came out, as you mentioned, with our first player some months ago. The concern
that we have is that if there are multiple standards out there, that's bad for everyone. It's not only confusing to the
customer, but it also drives up the costs for the industry. So really we want to focus on Blu-ray and we think that's
the best format, but we have to think about what scenarios might happen going forward. We think that multiple standards
are not a good thing and that's certainly the pushback we get also from retail — they don't want to be selling multiple
products.

Do you think that HD DVD will dropout or that there will be a unified format? Or are we past the point of no
return?

Hopefully there will be one standard, now whether that is a unified format or one of one of the current standards, who
knows at this moment. But like I said, our investments have all been on the Blu-ray side, and it looks like it has
enough traction in the market. It certainly has the right technical specs and performance so we're still very hopeful
for that.

How difficult is it to build a dual-format player? In the news reports from a few weeks ago Samsung said that
it would take some time to develop, but how much of a technical challenge is it? And if, Samsung can do it, how hard
will it be for your competitors, specifically those in China and Taiwan, to copy what you've done?

That's the really the challenge when you start mixing standards - it's going to drive up the complexity and the cost,
because then you need different heads to be able to read each disc. You can talk technically or intellectually about
yes, let's make universal players, but even in the DVD space, where we had DVD+RW, DVD-RW and DVD-RAM, it was
technically possible to make universal players, but after a point it becomes cost prohibitive. We think that having a
single standard is far better than trying to engineer for that sort of complexity and extra cost.

Is Samsung committed to putting out a dual format player if both Blu-ray and HD DVD make it to
market?

No, no. I wouldn't say we're committed to doing that. I mean, we'll still have to see. It's not just a case of both
standards emerging, it's how much content will be available for each one. We really have from the outset been hopeful
that one standard, Blu-ray, will become the standard.

Samsung has been showing off a
40-inch OLEDdisplay. How long do you think until an
OLED display of that size goes is
commercially available?

It's going to be a while. In fact, we don't have any definite date in our product
planning road maps for OLED introduction. The purpose of showing the 40-inch display was really as a technology
statement, our focus for the next few years is very much on LCD monitors and TVs. OLED still has some very significant
challenges in manufacturing. So even though you can make a big technology statement and show that a 40-inch OLED is
technically feasible, there is a production problem to actually get a commercial device. It's unlike when we're showing
a 102-inch plasma,
82-inch LCD, or
71-inch DLP, where we're saying these large sizes are
possible commercially. Our 40-inch OLED is a long way from commercialized.

Like three to five years away?

At a minimum.

A lot of people are going to be disappointed to hear that.

I know when we're showing these large sizes that some people may think, "Oh, great this thing's coming," but I would
separate the positioning of OLED from that of other technologies. With OLED the challenge is how do you get reliable
lifetimes, and that means, yeah, it's going to be several years at least.

You've mentioned that Samsung is focusing on LCD, do you think you'll think still be making plasma displays
five years from now?

Plasma still has a good future, but proportionally at larger sizes. The market that we've seen in plasma is such that
the 42-inch size and under will come under greater and greater penetration from LCD. As our seventh generation
production really comes online and we begin to get some cost improvements on this 40-inch class of LCD that will
proportionally take more business from plasma. Plasma will still have business at 42-inch and above - I'm not saying
that it's going away, just that LCD will start making inroads there. I don't think it's going to go away in the next
few years, it's just going to be impacted by the growth of LCD.

The last time we saw a Samsung laptop here was when it was AST some years ago, and that business was a big problem for
us. I can't say never, but the focus of our efforts is not on coming into the U.S. market. We've built a branded
business in Western Europe and some parts of Asia, but the U.S. is an entirely different story. Building a business is
much more than just having the right kind of technology and design. It's also about the channel coverage, it's about
the service infrastructure. And in the U.S. market now there are several very successful players — in fact the most
successful probably is Dell, which is a great partner of ours on the component side - so we don't really don't have any
plans for the U.S. laptop business. It's a very tough market for someone new to come in and try and make money. I think
the way we're set up now, where we have our own branded distribution of just high-end laptops in Western Europe and
parts of Asia, that's working for us. North America is an entirely different story.

It seems like Sony's electronics business has seen two or three year in a row of sub-optimal performance. Why
do you think they've been stumbling and how is Samsung going to take advantage of that? What does Samsung need to do to
surpass Sony as the world's largest consumer electronics brand?

When we look at the changes in the industry over the last few years, the big opportunity we had was this change from
analog to digital. In the IT industry it's been digital basically forever. PCs have basically been digital forever. In
the consumer electronics space, this has been a much more recent development. It's only been in the last decade that
we've really seen digital content coming in, and that's been the big opportunity for Samsung. It's been this huge
breakpoint that's gone from tube televisions to flat panel televisions, just like the LP is a technology that's gone
from record players, LPs to CDs, now to the portable audio flash-based or hard disk playing space. Companies that were
successful during the analog era are not necessarily the companies that are going to be successful going forward, so
that's been our chance to come in.

Where we see as the next big opportunity for us going forward is around convergence because we have such a huge array
of building block technologies, whether it's the computing platform through our laptops or audio computer systems,
portable audio, video - we're now the world's biggest TV business. All of these different pieces — wireless
communications, digital multimedia broadcasting — all of these we can put together into convergence products because
content in a digital format can be shared between devices, platforms, moved around the home, all of those things. What
we see as our real future is leveraging all of our strengths and components, core technology products, to facilitate
this era of convergence.

You've talked before about open standards and about Samsung being supportive of unified standards. Is there a
temptation for Samsung to follow the Sony model and try to build a so-called "Samsung platform," or is the company
committed to a more open system, even if that means consumers won't only be buying Samsung products? Does Samsung have
a different philosophy than Sony?
Our philosophy is very clearly in favor of open standards and interoperability, and it's also clear in our business
strategy to focus on devices, which is why we haven't really gone into the content space anywhere other then in Korea
where we have a few activities. We believe our strength is in our products and we should we rely on our partnerships
and working with others for content delivery or content itself, hence our recent announcement to work with Discovery on
HD and with Microsoft for HD Xbox 360 gaming. Let others that are good at the gaming experience and the content
experience really focus on that. That's where they have their expertise in their brand, and let us focus on devices
that we should be able to make better then anyone else.

That's really the philosophy. As a latecomer to the consumer electronics industry, one that was coming in in the analog
era, we would often find new standards being used against us, that were being used to control an industry, or something
like that, and in general we don't think that's healthy. Obviously a company needs to earn a return on its R&D
investment, but interoperable standards, open standards, are by far the best for any industry or for consumer adoption,
so we are very much committed to those, rather then trying to control things or take our own unique proprietary
position. And that's across all that we do.